For this fighter, life was a big battle

Manas Chakravarty

Many years ago, during his celebrated fight with Indian Express proprietor Ramnath Goenka, Dhirubhai Ambani commented, "My success is my worst enemy."

The meteoric rise of Ambani and his challenge to established business houses made him an obvious target for detractors, all the more so since he was a complete outsider, relying on his wits instead of family connections to make his fortune.

His vaulting ambition, his appetite for risk and his swashbuckling larger-than-life image made him a natural target for those who resented his meteoric rise to the top of the business ladder. He wasn't just the veteran of many battles - his whole life was one big battle.

By inclination and instinct, Dhirubhai was a fighter. What better place for a fight than the stock exchange? Twenty years ago, bear cartels called the shots in a cowboy market.

Throttling the bears
In March 1982, the Reliance scrip was the target of a bear raid organised by a Kolkata based industrialist. They picked the wrong target.

While the share was being hammered down by the bears, Dhirubhai organised a rescue operation, with friendly brokers buying up every share being sold. Then, knowing fully well that the brokers did not have possession of the shares they had sold, he demanded delivery.

The bear cartel was thrown into a panic and desperately started buying Reliance shares. When cartel members asked for time to deliver the shares, Dhirubhai asked his friends to refuse. The upshot - the Bombay Stock Exchange had to be shut for three days. But the bears had been taught a lesson - do not meddle in Reliance shares.

It wasn't long, however, before Dhirubhai's enemies raised a simple question -where did he, till recently a yarn trader and only a budding industrialist, get hold of the money needed to stop the bears in their tracks?

The answer was delivered by the then Finance Minister Pranab Mukherjee, who announced in Parliament that non-resident Indians had invested over Rs 220 million in Reliance during 1982-83. These investments had also been made by companies with names like Crocodile, Lota and Fiasco.

Investigations by journalists revealed that these companies had been registered in the Isle of Man, the tax haven, by several people sporting the surname Shah. Who did these companies belong to? Questions were raised and fingers pointed, but a Reserve Bank of India enquiry could not find any wrongdoing by Reliance.

The matter died a natural death.

One of Dhirubhai's most celebrated battles was with V P Singh, then finance minister in Rajiv Gandhi's cabinet. Having built up a cosy relationship with Indira Gandhi, Ambani had no inkling that things would change when she was assassinated on October 31, 1984, and her son Rajiv became prime minister.

It wasn't long, however, before V P Singh took his first pot shot at Reliance. He suddenly shifted purified terephthalic acid imports from the open general licence category to the limited permissible list in May 1985.

Reliance needed PTA imports to feed its polyester filament yarn plant, and lost no time in tying up with a host of banks to issue letters of credit for almost a year's supply of PTA.

Surprisingly, these LCs were opened days before the government notification was announced. The finance minister was obviously miffed, and slapped a 50 per cent import duty on PTA. That little spat was only the beginning of Reliance's troubles.

The debenture issues

Dhirubhai had always understood finance very well, amply illustrated by the fact that Reliance paid virtually zero tax. In 1984, a cash-strapped Dhirubhai hit upon a brainwave.

Reliance had issued plenty of non-convertible debentures, and his standing among investors was God-like. Why not, he reasoned, convert the debentures into equity? That would improve the company's debt equity ratio, reduce outflow on interest, and allow him to raise funds once again.

The trouble was that these debentures were non-convertible. But Dhirubhai was not the one to let a little thing like that stand in his way. He managed to convince the finance ministry and investors lapped up his offer.

Unfortunately, V P Singh was not so easily convinced. A day before the Reliance board was to meet to consider another round of conversions in June 1986, V P Singh refused to permit it. All hell broke loose, with Reliance's debenture prices halving within a matter of hours.

Nor was that the end of the affair. Banks had lent heavily against the security of Reliance shares to about 60 investment companies, which were buying Reliance debentures. The Indian Express alleged that these companies were fronting for Reliance, and the whole operation made sense only if the debentures could be converted to shares.

The revelations led to an almighty stink, and, with the conversion not going through, the RBI ordered the banks to call back the loans. The entire episode took a heavy toll on Dhirubhai's health, and he suffered a paralytic stroke on February 9, 1986.

The Indian Express revelations were part of the campaign being conducted by Ramnath Goenka against Reliance. There are different accounts of what led to the break-up of their friendship, but there's no doubt that the Indian Express ran a systematic campaign against Reliance, a campaign that alleged all sorts of things, from Reliance building more than the licensed capacity to CBI investigations to the "loan mela" by the banks to Reliance front companies.

The government added to the pressure, withdrawing customs duties on imported PFY just as the Reliance PFY unit came on stream. For a while, it seemed like the end of the line for Dhirubhai.

But not for long. In December 1986, in a move dubbed as a referendum on Reliance by the media, a Rs 5 billion convertible debenture issue by Reliance was oversubscribed seven times.

Soon after, VP Singh was shifted from the finance ministry. The early conversion of the debentures into shares was permitted. Pending licences were cleared. In September 1987, there was a nationwide raid on the Express group, and scores of cases were filed against it. Dhirubhai had scored another victory. Dhirubhai's quarrel with Nusli Wadia was part and parcel of the fight against the Indian Express. During Reliance's troubles with the Indian Express, Dhirubhai was convinced that Nusli Wadia was behind the campaign.

They were, of course, business competitors, with Wadia manufacturing di-methyl terephthalate, while Dhirubhai opted for making PTA. Both are raw materials for making polyester yarn and fibre. Wadia had been opposed to Dhirubhai setting up the PTA plant. Matters weren't helped when Goenka, who had a soft spot for Wadia, sided with him against Reliance.

The one battle lost

One corporate battle which Dhirubhai did not win was the battle for control of Larsen & Toubro. In 1988, L&T was in bad shape, and the Ambanis thought that the time was ripe for an acquisition. Having secured the support of L&T's chairman, who saw Dhirubhai as a white knight in the battle against the raider Manu Chhabria, Mukesh and Anil Ambani became directors of L&T. By April 1989, Dhirubhai became chairman of L&T.

Unfortunately, things didn't go smoothly. In December Reliance's old bete noire, VP Singh, became prime minister. The Indian Express once again did the muck-raking, and found that the takeover had been effected by financial institutions like the Life Insurance Corporation and the General Insurance Corporation selling their shares. Since the institutions were not allowed to sell to private parties, the Indian Express alleged that the whole operation was a fraud.

The matter moved to the courts. Sensing defeat, the Ambanis reversed the transaction, taking a substantial loss. An extraordinary general meeting was called to decide whether the Ambanis would remain on the L&T board. Dhirubhai resigned. Eleven years later, Reliance sold its holdings in L&T to Grasim. Even that transaction was not free of controversy, as the Securities and Exchange Board of India felt that Reliance should not have bought L&T shares from the market a few months before deciding to sell its stake. The insider trading charge was settled with Reliance paying a nominal fine.

The share switch hitch

Another battle was the share switch controversy. Here too Ambani did not come off all that well. Apparently, when Unit Trust of India sent some Reliance shares to its registrars for transfer, it received some other shares - with different numbers - in return.

The markets jumped to the conclusion that there was something fishy - perhaps even fake shares in play. A Securities and Exchange Board of India investigation into the matter did not find evidence of this, but there were lots of discrepancies in the numbering of shares issued and the share transfer process was found to have many loopholes.

For a man who single-handedly created the equity cult, Ambani was seen as running a less-than-tidy ship in its share transfer operations. Sebi asked Reliance Consultancy Services, the group's registrar, to shut shop. And the crisis blew over.

In the wireless loop

Reliance also attracted controversy when the telecom sector was being opened up. Initial regulation of the sector involved clear-cut lines of demarcation between cellular and basic operators.

At the same time, wireless in local loop technology offered the possibility of limited mobility. WiLL supporters pointed to its cheapness and called it limited mobility for the masses.

Cellular operators, on the other hand, protested that limited mobility was an infringement on their turf, and unjustified because they had paid hefty licence fees. Reliance critics lost no time in pointing out that since the Reliance group held basic licences in many telecom circles, they would be one of the principal beneficiaries if basic operators were allowed entry to the limited mobility segment.

The telecom regulator, however, did allow limited mobility, albeit with restrictions limiting the area in which it could be used. The matter continues to be dogged by controversy, with the parties taking recourse to the courts. There have been other battles and controversies, the most recent one being the alleged infringement of the Official Secrets Act by Reliance employees.

Dhirubhai's position as an outsider in India's business world meant that he has had to deal with more than the normal share of jealousy and animosity. But that did not dim his zest for battle or derail his dream of making Reliance the largest private sector company in India.